Figure: Differences in Risk Aversion

question 76

Multiple Choice

Figure: Differences in Risk Aversion
(Figure: Differences in Risk Aversion) Based on the information in the figure Differences in Risk Aversion, which of the following statements is correct?

• A)Ernest will gain more from insurance than will Salvatore.
• B)Salvatore will gain very little from an increase in income compared with Ernest but will lose a lot of utility from a fall in income.
• C)Ernest is more risk-averse than Salvatore.
• D)If either Ernest or Salvatore buys insurance, adverse selection will occur.

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Definitions:

ATC

Average Total Cost, which is calculated by dividing the total cost by the quantity of output produced.

Economic Profit

The surplus or profit remaining after deducting both explicit and implicit costs, including opportunity costs, from total revenues.

Interest Rate

The percentage charged on a loan or paid on deposits over a specific period of time, often annually.

Economic Profit

The difference between a firm's total revenue and its total costs, including both explicit and implicit costs, reflecting the true profitability of the business.